Apr 12 1st Quarter National Office Market Overview

In the first quarter of 2012, office markets witnessed solid net absorption, with little new construction and near zero growth in asking rents.

"While the data shows near zero rent growth in the quarter, the national vacancy rate of 12.9%, combined with the prospect for future vacancy decline, suggests the scales are tipping toward generating office rent growth," according to Walter Page, director of research for CoStar's Property and Portfolio Research division.

Nationally, office net absorption was at 11.5 million square feet -- down from 16 million square feet in the fourth quarter of 2011, but more than double the pace from the first quarter of last year. New construction deliveries were exceptionally low at just 5 million square feet, although construction activity is starting to rise with over 8 million square feet of new office starts in the quarter. Of the top markets, all but Washington, DC, achieved a year-over-year decline in vacancy, indicating the broad base for the office market recovery.

For the third quarter in a row, net absorption was very solid, with Houston and Chicago leading the nation at 1.6 million square feet each. Washington, DC, with negative 421,000 square feet of net absorption, recorded the lowest level among the top metros.

As a result, the national office vacancy rate dipped below 13% for the first time since 2008.